To provide a framework for the
regulation and supervision of all the entities involved in issuance of Prepaid
Payment Instruments in the country and to ensure orderly development of this
segment of the payments and settlement system in a prudent and customer
friendly manner.

B. Scope

These guidelines lay down the
eligibility criteria and the basic conditions for issuance of prepaid payment
instruments in the country. All entities seeking to issue prepaid payment
instruments in India shall comply with these guidelines.

All non-bank entities proposing
to issue such instruments, unless otherwise specifically exempted as per the
guidelines, shall seek authorization from the Reserve Bank of India, under the
Payment and Settlement System Act 2007.

Banks and Registered Non-Bank
Financial Companies seeking to issue such instruments shall seek approval from
the Department of Payment and Settlement Systems, Reserve Bank of India.

All entities currently issuing
such instruments shall comply with the guidelines within three months from the
date of issuance of these guidelines.

C. Structure

1. Introduction

1.1 Banks and non-bank entities
have been issuing prepaid payment instruments in the country. Hitherto only
banks proposing to issue prepaid payment instruments were approaching Reserve
Bank for authorization.Consequent to
the passing of Payment and Settlement systems, Act 2007, all non-bank entities
currently issuing prepaid payment instruments and those proposing to issue such
payment instruments would have to approach Reserve Bank for authorization. In
the emerging scenario, it is imperative to have a set of guidelines for prepaid
payment instruments that would cover both banks and non-bank entities, to
ensure orderly development and operations of prepaid instruments in the
country. Reserve Bank of India has therefore has brought out these set of
operating guidelines.These guidelines
lay down the eligibility criteria and the basic conditions for issuance of
prepaid payment instruments in the country.

2. Definitions

2.1 Issuer: Entities issuing
prepaid payment instrument to individuals/organizations. The money collected is
retained by these entities and they make payment to the merchants who are part
of the acceptance arrangement directly or through a settlement
arrangement.

2.3 Prepaid Payment Instruments:
Prepaid payment instruments are payment instruments that facilitate purchase of
goods and services against the value stored on such instruments. The value
stored on such instruments represents the value paid for by the holder, by
cash, by debit to a bank account, or by credit card. The Prepaid instruments
can be issued as smart cards, magnetic stripe cards, internet accounts,
internet wallets, mobile accounts, mobile wallets, paper vouchers and any such
instruments which can be used to access the prepaid amount (collectively called
Payment Instruments hereafter).

The prepaid payment instruments
that can be issued in the country are classified under the four categories viz.
(i) Closed system payment instruments (ii) Semi-Closed system payment
instruments (iii) Semi-Open system payment instruments and (iv) Open system
payment instruments.

2.4 Closed System Payment
Instruments: These are payment instruments generally issued by business
establishments for use at their respective establishment only. These
instruments do not permit cash withdrawal or redemption.

2.5 Semi-Closed System Payment
Instruments: These are payment instruments which are redeemable at a group of
clearly identified merchant locations/ establishments which contract
specifically with the issuer to accept the payment instrument. These
instruments do not permit cash withdrawal or redemption by the holder.

2.6 Semi-open System Payment
Instruments:These arepayment
instruments which can be used for purchase of goods and services at any card
accepting merchant locations (Point of sale terminals). These instruments do
not permit cash withdrawal or redemption by the holder.

2.7 Open System Payment
Instruments: These are payment instruments which can be used for purchase of
goods and services and also permit cash withdrawal at ATMs

2.8 Mobile Prepaid Instruments:
The prepaid talk time issued by mobile service providers. This value of talk
time can also be used for purchase of 'value added service' from the mobile
service provider or third-party service providers.

2.9 Net Owned Funds: For the
purpose of these guidelines "Net owned Fund" (NOF) will consist of
paid up equity capital, free reserves, balance in share premium account and
capital reserves representing surplus arising out of sale proceeds of assets
but not reserves created by revaluation of assets. From the aggregate of items
will be deducted accumulated loss balance and book value of intangible assets,
if any, to arrive at net owned funds. The NOF should be computed on the basis
of last audited Balance Sheet and any capital raised after the Balance Sheet
date should not be accounted for while computing NOF.

3. Eligibility

3.1 Banks and Non-Bank Finance
Companies (NBFC), who comply with the eligibility criteria, would be permitted
issue all categories of prepaid payment instruments.

3.2 Only banks which have been
permitted to provide Mobile Banking Transactions by the Reserve Bank of India
shall be permitted to launch mobile based prepaid payment instruments (mobile
wallets & mobile accounts).

3.3 Other entities would be
permitted to issue only closed system prepaid payment instruments and
semi-closed system prepaid payment instruments.

3.4 Mobile Prepaid value: Mobile
Service Providers are permitted to issue mobile prepaid value. In addition to
talk-value the use of such prepaid value as a payment instrument shall be
restricted to the purchase of only such value added digital contents/services
which are for use on the mobile phones. The use of mobile prepaid value for
purchase of other goods and services shall not be permitted.

4. Exemption

4.1 Entities issuing closed
system Prepaid payment instruments are exempted from the purview of the
guidelines and need not seek authorization from Reserve Bank of India, for
issuance of such payment instruments subject to the following:

i. A closed system payment
instrument shall have a maximum value of Rs 5000/- only.

ii. These instruments cannot be
used for purchase of another prepaid payment instrument.

iii. Amounts collected under the
scheme shall be exempt from the provisions of paragraph 7 below, provided the
value of outstanding instruments does not exceed Rs 50 lakhs or 10% of the
issuers' 'net owned funds', whichever is lower.

v. half yearly audited statement
shall be submitted to the Reserve Bank by such entities indicating the total
value of instruments issued during the period and the value outstanding as at
the end of the period. It shall be accompanied by a certificate from the
Statutory Auditors stating that the company complies with the provisions of
paragraph

4.1(iii) above.

4.2 Foreign Exchange Prepaid
Payment Instruments:Entities authorized
under FEMA to issue foreign exchange prepaid payment instruments are exempt
from the purview of these guidelines. The use of such payment instruments shall
be limited to permissible current account transactions and subject to the
prescribed limits under the Foreign Exchange Management (Current Account
Transactions) Rules, 2000, as amended from time to time.

4.3 Mobile Prepaid Instrument:
Mobile Prepaid Instruments are exempt from purview of the guidelines, subject
to the following conditions:

i. In addition to talk time-value
the use of such prepaid instrument shall be restricted to the purchase of only
such value added digital contents/services which are for use on the mobile
phones.

ii. The use of mobile prepaid
instruments for purchase of any other goods or services shall not be permitted.

iii. Encashment of such prepaid
instruments shall not be permitted.

5. Capital requirements

5.1 Only banks and Non-Bank
Finance Companies complying with the Capital Adequacy requirement prescribed by
Reserve Bank of India from time-to-time shall be permitted to issue prepaid
payment instruments.

6.1 The guidelines on Know Your
Customer/Anti-Money Laundering/Combating Financing of Terrorism guidelines
issued by the Reserve Bank of India to banks, from time to time, shall apply
mutatis mutandito all entities issuing
prepaid payment instruments. Necessary systems shall be put in place to ensure
compliance with these guidelines.

6.2 The use of prepaid payment
instruments for cross border transactions shall not be permitted except for the
payment instruments provided at paragraph 4.2 of the guidelines.

6.3 The maximum value of any
prepaid payment instrument (where specific limits have not been prescribed)
shall not exceed Rs 50,000/-.

6.4 Exemption/relaxation form the
provision of KYC requirements are available only in the following cases:-

i. Semi-Closed System Payment
Instruments up to Rs 1000/- may be issued without any KYC subject to reporting
of annual turnover/suspicious transactions. The issuer should ensure that,
under no circumstance, more than one card is issued to the same person.

ii. Prepaid payment instruments
up to Rs 5000/- can be issued by accepting any 'Government issued Identity
Cards' as proof of identity. Such instruments shall not permit cash withdrawal.

iii. Semi-closed Prepaid payment
instruments which permit only payment of utility bills/ essential services up
to a limit of Rs 10,000/- can be issued without any KYC being undertaken by the
issuer. The entities issuing such instrument may ensure that these instruments
are made acceptable only at institutions which maintain the identity of the
customers. The utility bills/ essential services shall include only Electricity
bills, water bills, telephone/mobile phone bills, and insurance premium,
cooking gas payments, ISP for Internet/Broadband Connections, Cable/DTH
subscriptions and Citizen Services by Government or Government bodies.

iv. Entities issuing prepaid
payment instruments to institutions/companies for further issuance by these
institutions/companies to their employees or other beneficiaries may ensure
thatthese institutions/companies
maintain the full details of the employees or beneficiaries to whom such
payment instruments are issued. The value of individual payment instrument
shall not exceed Rs 5000/-. Such instruments shall not permit cash withdrawal.

6.5 Entities issuing prepaid
payment instruments shall maintain a log of all the transaction undertaken
using these instruments. These data should be available for scrutiny by the
Reserve Bank or any other agency / agencies as may be advised by the Reserve
Bank. These entities should also file Suspicious Transaction Report (STR) to
Financial Intelligence Unit – India (FIU-IND).

7. Deployment of Money collected

7.1 The outstanding amount (float
money) at a point of time could be substantial. Further, the turnover of funds
may also be rapid. The confidence of public and merchant establishments on
prepaid instrument schemes depends on the timely settlement of claims arising
from use of such instruments. To ensure timely settlement, the issuers shall
invest the funds collected only as provided here-in.

7.2 For schemes operated by banks
and non-bank financial companies, the outstanding balances shall be part of the
net demand and time liabilities for the purpose of maintenance of reserve
requirements. This position will be computed on the basis of the balances
appearing in the books of the bank as on the date of reporting.

7.3 Other entities issuing
payment instruments (except those exempted from the purview of the guidelines)
are permitted to maintain their outstanding balance in an escrow account with
any scheduled commercial bank subject to the following conditions:

i. NO interest is payable by the
bank on such balances.

ii. A quarterly certificate from
the auditors shall be submitted certifying, the entity has been maintaining
adequate balances in the account to cover the outstanding volume of payment
instruments issued.

iii. The entity shall also submit
an annual certificate, as above, coinciding with the accounting year of the
entity to the Reserve Bank of India.

iv. Adequate records indicating
the daily position of the value of instruments outstanding vis-à-vis balances
maintained with the banks in the escrow accounts shall be made available for
the scrutiny to the Reserve Bank or the bank where the account is maintained on
demand.

7.4 As an exception to the above, an entity
can enter into agreement with the bank where escrow account is maintained, to
transfer "core portion", of the amount in the escrow account to
separate account on which interest is payable, subject to the following:-

i. The bank shall satisfy itself
that the amount deposited represents the "core portion" after due
verification of necessary documents.

ii. The amount shall be linked to
the escrow account, i.e. the amounts held in the interest bearing account shall
be available to the bank, to meet payment requirements of the entity, in case
of any shortfall in the escrow account.

iii. This facility is permissible
to entities who have been in business for at least ONE YEAR and whose accounts
have been duly audited for the full accounting year.

iv. NO LOAN is permissible
against such deposits. Banks shall not issue any deposit receipts or mark any
lien for the amount held in such form of deposits.

8.2 Reloading of closed system
payment instruments would be permitted at the retail agents and issuers outlets
against cash/debit cards/credit card.

8.3 Banks and NBFCs are permitted
to issue and reload such payment instrument at their branches against payment
by cash/debit to bank account/credit card.Banks are permitted to issue and reload of such payment instruments through
their business correspondents appointed as per the guidelines in this regard
issued by the Reserve Bank.

9. Validity

9.1 All prepaid payment
instrument issued in the country shall have a minimum validity period of six
months from the date of activation/issuance to the holder.

9.2 In the case of non-reloadable
prepaid payment instruments, the transfer of outstanding amount at the expiry
of the payment instrument to a new similar payment instrument of the same
issuer, purchased by the holder may permitted.

9.3 The outstanding balances in
any payment instrument shall not be terminated immediately at expiration, of
the instrument. The value may be depleted at the rate of 10 percent of the
outstanding value per month.The holders
may also be adequately cautioned in advance as regards the expiry of the
validity of the payment instrument.

10. Redemption

10.1 The issuers of such
instruments shall not dishonor customer instructions for payments/transfers of
money, at approved locations, if there is sufficient balance outstanding
against the instrument.

10.2 The holders of prepaid
payment systems other than open-system payment instruments shall also be
permitted to redeem the balance outstanding within the expiry date, if for any
reason, the scheme is being wound-up or directed by the Reserve Bank to be
discontinued.

10.3 Where redemption is provided
as at 10.2 above, the redemption value shall not be in excess of the amount
outstanding or the face value (loading limit) for the instrument.

11. Fraud prevention and Security
standards

11.1 The prepaid payment
instruments issuers shall put in place adequate information and data security
infrastructure, and systems for prevention and detection of frauds. It is
advisable to build a centralized database to prevent multiple purchase of
payment instruments at different locations, leading to circumvention of limits
if any prescribed for such payment instruments.

12. Customer Protection Issue

12.1 All Prepaid payment
instruments issuers shall disclose all important terms and conditions in clear
and simple language (preferably in English, Hindi and the local language)
comprehensible to the instrument holder while issuing the instruments. These
disclosures shall include:

i. All charges and fees
associated with the use of the instrument.

ii. The expiry period and the
terms and conditions pertaining to expiration of the instrument.

iii. The customer service
telephone number and website URL.

12.2 A effective mechanism for
redressal of customer complaints shall be put in place by the entity issuing
prepaid payment instruments.